Topic: Weekly FX Report

US consumer prices fell unexpectedly in April, while import prices surged by 0.9%. Retail sales and industrial production stagnated, signaling a slower Q2 start. German investor sentiment hit a high, and China’s recovery remains manufacturing-driven. The US dollar weakened despite hawkish Fed comments.

A strong earnings season and soft US data, supporting the case for interest rate cuts, gave investors the green light to switch into a risk-on mode. Pro-cyclical currencies cheered.

In a tumultuous week, the yen surged with suspected Japanese intervention, while the US dollar faltered on a dovish Fed and a colder-than-expected US jobs report. Rate cut speculation returns ahead of the upcoming Bank of England meeting.

The conclusion of the week has been that US inflation remains sticky while US exceptionalism on the growth side is waning. Markets were mixed though, with equities rising, yields stamping new 5-month highs but the US dollar sliding against most peers.

The US Dollar Index paused last week, leading to a marginal weekly gain as yields retraced slightly. The rhetoric has changed within the Fed and markets are adjusting to this reality. Geopolitics remains front and center.

Macro and markets look a lot different now then they did two weeks ago, and it has once again been US economic data that investors can blame for causing this volatility.